Unbanked

Red -- Getting Out of It -- Is the New Black

Maria Sotero — Tue, 10 Nov 2009 02:22:00 -0500

Across California and the nation- in New York, Los Angeles, San Francisco, and Sacramento- money is the subject of buzz, new ideas, and VIP events. Specifically, the topic is the lack of money- the have-nots, the why-nots, and trendsetting solutions.

For once the subject is not just the typical California budget woes. Those aren't new (yet somehow the designers bring them back every season). It's banking development districts (BDDs), and the new models of community-building and economic development being tried on by cities. And it's the poverty measure, and the work being done to revamp its outmoded form and function.

BDDs create incentives to encourage banks and credit unions to locate in low-income areas that lack mainstream financial institutions, and are fast becoming the subject of local buzz. On October 30th the Los Angeles City Council announced it was unanimously passing a motion directing the city attorney to draft a BDD ordinance.

LA is the first city in the nation to create a BDD ahead of the example of its own state. New York City created one, after New York State did ten years ago. That model has been proven to work, but other states have failed to pick up the trend. (And with any hot, "in" model, there's been a bit of catty criticism. These ordinances make city deposits already deposited in - guess what - banks a 'carrot' for those volunteering to locate in bank-less areas. That's not "corporate welfare" or "letting council members play with bank funds," it's good, smart policy.) This recent local action could provide the impetus to state legislators to create a statewide BBD program.

As far as non-legislative ways cities can help their unbanked constituents, San Francisco has set the trend. The city's "Bank on" initiative is a public-private partnership to 'bank the unbanked,' who in San Francisco pay as much as $40 million a year to check cashers and payday lenders, by facilitating access to free or low-cost traditional bank services. Where location of banks is not the issue, partnerships like Bank on do much to increase the economic stakes of hard working families. And 50 cities across the nation 'Banked on' after seeing Frisco's success.

We're talking about poverty. So let's see what we're talking about. The federal poverty measure, which was designed the same year as the lava lamp and the smiley face, is pitifully outdated. Tripling the cost of food does not endure eternally as the measure of 'how much is enough' for America's families. Housing and health care have become luxury goods, while food has become relatively cheap.

New York City, not surprisingly, is where the modern measure debuted. Mayor Bloomberg's Director of Poverty Research Mark Levitan took the National Academy of Science's recommendations to create a method that reflects both the geographic differences in housing costs, and all the varying kinds of state support received, when determining whether a family is in poverty. That's two things the current measure does not do. President Obama endorsed the update. And a few weeks ago, New America's California Asset Building program hosted Dr. Levitan at a small roundtable in the Capitol for key staff. If California follows suit, it will be fitting with the goal of keeping the state on the leading edge.

All fashion puns aside, the work and the conversation is not important because it's new, but because it's necessary- California may actually have the highest poverty rate in the nation. And before a problem can be mended, it has to be measured correctly.

Simple and creative solutions are not going to go out of style- we just need to make sure we update policies that no longer function the way they were originally designed.

Another City Looking After Its Low-Income Residents? Bank On It

Mark Huelsman — Tue, 26 Aug 2008 22:47:00 -0400

Add Evansville, Indiana to the list of communities adopting services for the unbanked. City leaders, in collaboration with a number of financial institutions, have set up a program called "Bank on Evansville." Similar to the "Bank on San Francisco" program currently up-and-running, this program will attempt to keep unbanked families from paying excessive check-cashing fees, which can total nearly $900 annually for some, according to the city.

Though details have yet to be finalized on the program (set to launch in 2009), many banks and credit unions are already offering accounts that require no minimum balance, as well as second-chance accounts for those who have lost one.

To be eligible for these accounts, the city is offering and requiring those who enroll to take a financial education course. Details of the course have yet to be finalized.

Partners include: Old National Bank, the Federal Reserve Bank of St. Louis, the United Way of Southwestern Indiana, Integra Bank, Fifth Third Bank, the Bank of Evansville, Farmers State Bank, Evansville Commerce Bank, Heritage Federal Credit Union and the Evansville Teachers Federal Credit Union.

These programs provide much-needed financial education to those who need it most while providing many with a first-time opportunity to save and build up their asset base.

According to the Census bureau, 14% of U.S.-born white families have no checking or savings account, compared to 34% of U.S.-born Hispanic families and 46% of black families. Evansville officials estimate that 6,000 residents are currently unbanked, out of a population of approximately 110,000-- or 5.4%. Although surveys vary, that number seems to be lower than the national average.

Listening to the Unbanked

Alejandra Lopez-Fernandini — Tue, 22 Apr 2008 14:41:00 -0400

Between 10 and 20 million Americans are unbanked, meaning they lack a basic checking or savings account. An estimated 40 million others are underbanked--they have a bank account but may have difficulty retaining it, and are not fully integrated into the financial mainstream.

What deters low and moderate income individuals? Households living paycheck to paycheck often avoid traditional bank accounts for their minimum balance requirements, high overdraft penalties, monthly maintenance fees, and delayed deposit of checks. As a result, public-private efforts to pilot initiatives are addressing this disconnect between mainstream market offerings and low-income banking needs and yielding important insights into consumer demand. However, in an effort to tailor public and public-private initiatives targeted towards under-banked populations, it is important to listen to their preferences to structure valuable programs that they will use. In this regard, policy-makers can look to the private sector's experiences for guidance.

What do we know from research, well-crafted demonstration projects, and surveys of low income non-bank consumers? First, consumers prefer quick and convenient access to their funds; a product to conduct point-of-sale and ATM transactions; the opportunity to set aside funds in savings account; transparent fees and process; and government safeguards and protections.

From consumer research of the alternative financial services industry (specifically, check cashing establishments nationwide), we know that consumers seek these non-bank financial products and services because they provide transparent fees stated up-front, immediate liquidity, a sense of privacy, multi-lingual service representatives, and the ability to purchase multiple services-all in convenient locations and hours. Consumers are also drawn to non-bank providers because they convey high levels of trust, respect and security to the individual.

Low income consumer preferences have become well-incorporated into practices of very profitable alternative financial services industry; public efforts to bring more working individuals into the financial mainstream should follow suit, without adopting their predatory and usurious practices.

The New America Foundation's concept for an Assets and Transaction Account proposes to leverage the tax filing process to deliver a transaction and savings account to working, low-income individuals. By directly depositing a tax filers' refund into a basic, low-cost account held at regulated financial institution, the individual will gain access to the mainstream financial system and a host of product features informed by consumer preferences.

Public policies aimed at jumpstarting a relationship between a working individual and a regulated financial institution should take some cues from the private sector and incorporate knowledge of lower income consumer preferences in efforts to design and provide access to safe and fairly priced services. By listening to consumer preferences, policy-makers can deliver programs that are fair and affordable and meet the needs of those they are serving.